Question

Benoit Company produces three products—A, B, and C. Data concerning the three products follow (per unit):...

Benoit Company produces three products—A, B, and C. Data concerning the three products follow (per unit):

Product

A B C
Selling price $

80.00

$ 60.00 $ 72.00
Variable expenses:
Direct materials 24.00 15.00 9.00
Other variable expenses 24.00 33.00 45.00
Total variable expenses 48.00 48.00 54.00
Contribution margin $ 32.00 $ 12.00 $ 18.00
Contribution margin ratio 40 % 20 % 25 %

The company estimates that it can sell 1,000 units of each product per month. The same raw material is used in each product. The material costs $3 per pound with a maximum of 6,000 pounds available each month.

Required:

1. Calculate the contribution margin per pound of the constraining resource for each product.

2. Which orders would you advise the company to accept first, those for A, B, or C? Which orders second? Third?

3. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 6,000 pounds of materials?

Homework Answers

Answer #1
Product
A B C
Selling price 80 60 72
Variable expenses:
Direct materials 24 15 9
Other variable expenses 24 33 45
Total variable expenses 48 48 54
Contribution margin 32 12 18
Contribution margin ratio 40 20 25
Material Req per unit 8 5 3
1) Contribution per pound 4 2.4 6
(Contribution margin per unit/ material Req per unit)
2) Ranking of production Second Third First
3) No. of units to be manufactured 375 1000
material requirement in production 3000 3000
(Total 6000 pounds)
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